Uncovers filing delays due to accounting disagreements with SEC

(Bloomberg) — Discovery Financial Services Inc. said it will miss a deadline to file quarterly reports with regulators, citing a disagreement with the U.S. Securities and Exchange Commission over accounting for credit card misclassification errors.

The company said in a filing on Wednesday that it was unable to file its three-year financial statements for the period ended Sept. 30 by the required date because SEC staff disagreed with “certain aspects of the company’s accounting methodology for credit card product misclassification issues.” Form 10-Q within the month. ”

Discover disclosed last year that the company was overcharging merchants after misclassifying certain credit card accounts into the highest pricing tier, and its CEO resigned as compliance issues intensified. The credit card company said in July that it had reached settlement class-action agreements with affected retailers and expected that the $1.2 billion it had set aside for related liabilities would be enough to resolve the issue.

Discover said it expects that when it files its Form 10-Q, it may reflect the reallocation of approximately $600 million in expenses recorded in the quarterly report for the quarter ended March 31 to prior periods. The company said that since the reallocation will offset other charges recorded in the first quarter, “it will result in an increase in pre-tax income by the same amount for the three months ended March 31, 2024 and the nine months ended March 31, 2024.” amount”. September 30th. ”

Capital One Financial Corp. is expected to acquire Discover, one of the largest mergers announced this year. The SEC is reviewing Discover’s financial statements related to the pending merger, the filing said.

A representative for Discover declined to comment beyond the filing. Representatives for Capital One did not immediately respond to a request for comment.

Overdue financial statements can be considered a financial reporting red flag, and large companies will go to great lengths to avoid missing SEC deadlines. Riverwoods, Ill.-based Discover said in Wednesday’s filing that it may not file within the specified five-calendar-day extension period because it needs more time to resolve the issues. The company also said it has not yet determined whether previous financial statements will need to be restated or restated to address any potential accounting errors.

–With help from Nicholas M. White.

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